The outbreak of the Coronavirus has driven the widespread adoption of virtual solutions the world over. While the determination of man to adapt very quickly is worthy of note, we cannot downplay the importance of the advancement of technology in bringing the world to everyone’s living room.
In the last decade, innovations in technology have seen the proliferation of fintech – short for financial technology, industry. The term fintech describes the technology used in the financial sector, covering from crowdfunding to digital banking solutions. As the world resumes non-essential activities, which may not return to the way they always have been, we are faced with the question of how financial technology can bridge the gap in Africa.
Financial technology has evolved over the years, ranging from blockchain technology to digital banking, mobile payment options, and crowdfunding. “Mobile payments” is one of the popular aspects of fintech today. Statista reports that fintech surpasses $1 trillion in global revenue as of 2019. Payment apps such as PayPal, Venmo, and Apple Pay as well as mobile money services, are very common in sub-Saharan Africa. According to Techpoint Africa, 48.4% of active global mobile money users reside in sub-Saharan Africa.
One major advantage of fintech is the elimination of all the bureaucracy previously involved in opening and running a bank account. This has seen most companies offering mobile money services liaising with the telecoms sector to make their services accessible to a wider range of people through USSD codes.
According to Quartz Africa, in the bid to corner the 57% of African adults that have been left behind in the drive for financial inclusion, mobile money companies are doing better than traditional banks. The potentials in fintech are so attractive that traditional banks are getting in on the action, despite their obvious limitations when compared with other players.
The future might be bright for fintech post-lockdown, with WHO endorsing cashless transactions over cash payments;however, we must apply some restraint. One cannot but agree with the perspective of Arundhati Roy when she described the Coronavirus pandemic has a gateway that gives us the chance to rethink and recreate our world.
We cannot expect that the world will go back to doing things the way we have always done before the pandemic, but it is impractical and to have blanket bullish expectations will be precarious. The other side of the COVID-19 outbreak could raise challenges for fintech and user preference, just as easily as it may unlock new frontiers.
According to Ken Njogore, this current crisis can actually be the push for digital change that Africa seriously needs, but for it to do that, the following factors need to be taken into consideration
M-Pesa made her entry into the Kenyan market somewhat unceremoniously – she was just another company trying to make profits by offering financial services. It took only about six years for banks to realize what had happened when Forbes reported that 40% of the GDP of Kenya was processed through their platform. Shortly, there was a push for more regulations for the mobile money market. Increased regulations, as opposed to checkmating the activities of fintech platforms, often backfire, as the old players struggle to remain relevant.
According to Nigerian law firm Aluko and Oyebode, the financial regulatory framework in Nigeria is still largely dependent on laws that came into force during the third industrial revolution to control traditional financial players. Therefore, they are struggling to find relevance in the fast-growing, fluid world of fintech.
With these new opportunities to spend and save money has also come the increased risk of cyberattacks. According to CurrencyCloud, some banks are all-out against fintech companies because it is risky and dangerous to support them
Fintech companies like M-Pesa have witnessed a wave of ingenious and organized crimes, resulting in huge losses for Kenyans.
According to the BBC a Kenyan Stanley Wanjiku lost $18,000 in one go. Right now, fraudsters and hackers have found ways to use the official number of Safaricom, M-Pesa’s parent company, to scam people of their savings.
With frequent attacks on their databases by hackers, fintech companies will need to be ahead of every loophole in the system, and spend lots of money in penetration testing to constantly upgrade to the latest security features to retain the confidence of their clients or risk losing them.
The rise of digital banks such as Kuda in Nigeria and Zazu in Zambia, with both recently getting a combined $3 million in funding, shows the market potential for fintech in Africa. This justifies the optimism surrounding fintech companies as a tool to transform economies and gain entry into that crucial 57% market that has been neglected by the conventional financial system.
The structure of the financial technology sector is suited to today’s world where a lot of activities have been cancelled, with the benefit of sending and receiving funds open to anyone willing to do so. As activities resume, no doubt, we will see increased patronage of the fintech industry, but whatever palpable digital revolution we envisage for Africa will have to navigate through a myriad of challenges.